24/10/2017
Payment retentions in the construction industry (E)
The practice of employers withholding a percentage of money owed to contractors to protect themselves against defects arising in their work (‘payment retention’) is the focus of a consultation launched after the extent of the practice’s negative impact on productivity, investment and growth in the construction industry was identified by government-sponsored research. *
Abuse of cash retention is a contentious topic in the construction industry, with key issues identified by the research including
- retention monies being used to pay other creditors when an employer becomes insolvent, so the contractors for whom it has been retained miss out
- a proportion of construction customers may be making payment of the retention conditional on the performance of obligations under another contract **
- unjustified late and non-payment of retention monies is a significant issue for some contractors
- a need to further investigate the suitability and feasibility of alternative mechanisms to retentions in the construction sector in England, in particular a retention deposit
* ‘Retentions in the Construction Industry: BEIS Research Paper 17’
The main consultation, ‘Retention payments in the construction industry’, links to the research document and is relevant to adjudicators, arbitrators and lawyers, as well as any party to a commercial construction contract. It is also relevant to those with an interest in prompt payment and insolvency practitioners.
Views are specifically sought on
- the effectiveness of existing prompt and fair payment measures for retentions
- the independent BEIS Research Paper and the Dept for Business, Energy and Industrial Strategy consultation stage impact assessment
- late and non-payment of retentions
- the appropriateness of a ‘cap’ on the proportion of contract value that can be held in retention and the length of time it can be held
- the effectiveness of existing alternative mechanisms to retentions
- the costs and benefits of holding retentions in a deposit scheme or trust account
** ‘2011 Changes to Part 2 of the Housing Grants, Construction and Regeneration Act 1996′ includes a provision that means it is no longer possible to make payment conditional on the performance of obligations under another contract.
The research suggest that a number of businesses in the sector do not yet understand, or have no knowledge, of this change and the greater certainty of entitlement to payment it should bring.
This second parallel consultation – which supports a non-statutory government review of the changes – seeks information to help establish how effective this and other changes have actually been in securing their objectives.
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